Before : |
J. A. Clyde-Smith, Commissioner, sitting alone. |
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Between |
Dominic Neil Kilbey |
Representor |
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And |
Grafters Limited |
First Respondent |
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And |
James Patrick Gorton-Baker |
Second Respondent |
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And |
Hugh Peter Jones |
Third Respondent |
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And |
Manual Labour Solutions Limited |
Party Cited |
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IN THE MATTER OF GRAFTERS LIMITED
AND IN THE MATTER OF THE COMPANIES (JERSEY) LAW 1991
Advocate M. P. Renouf for the Representor and Party Cited.
Advocate O. A. Blakeley for the First, Second and Third Respondents.
judgment on costs
the commissioner:
1. On 22nd December, 2014, the Court dismissed the representation of the representor ("Mr Kilbey") in which he claimed that the second respondent ("Mr Baker") and the third respondent ("Mr Jones") had conducted the affairs of the first respondent ("Grafters") in a manner which was unfairly prejudicial to his interests as a member, pursuant to Article 141 of the Companies (Jersey) Law 1991. At the same time, the Court granted Grafters judgment in relation to its counter claim that in breach of his fiduciary duties as a director, Mr Kilbey removed data from its office, awarding nominal damages in the sum of £100.
2. On 4th February, 2015, I sat to hear argument as to costs. I was informed that Mr Kilbey had incurred costs of approximately £360,000 (excluding disbursements) and the respondents approximately £301,000 (including disbursements). The subject matter of the dispute was Mr Kilbey's minority shareholding in Grafters, which the Court found that, following the abolition of LVCR, was now worth only £25,000, a valuation which I understand Mr Kilbey accepts. The costs that have been incurred over the five years or so of this litigation have therefore become grossly disproportionate to the value of the subject matter of that litigation.
3. It is worth setting out the well-established principles to be applied when considering an award of costs in civil proceedings as summarised by Page, Commissioner in Watkins and Connell v Egglishaw and Four Others [2002] JLR 1 (and as approved by the Court of Appeal in Flynn v Reid [2012] JLR 226) quoting from paragraph 7 - 9 of his judgment:-
"7. The principles that should guide the court in the exercise of its discretion in this area appear to me, therefore, to be as follows, stating them as shortly and simply as possible:
(a) The court's overriding objective in considering costs is, as in everything else, to do justice between the parties.
(b) In many cases, that objective will be fulfilled by making an award of costs in favour of the "winning" party, where a "winner" is readily apparent. In any event, the "follow the event" rule can still be a useful starting point.
(c) It is a mistake, however, to strain overmuch to try to label one party as "winner" and one as the "loser" when the complexity or other circumstances of the litigation do not readily lend themselves to analysis in these terms.
(d) The discretion as laid down in art. 2 of the Civil Proceedings (Jersey) Law 1956 is a wide one and ought not to be treated as fettered by any particular supposed rule or practice, other than that the discretion should be exercised judicially and broadly in accordance with the guiding principles referred to in In re Elgindata (No. 2)(5) and A.E.I. v. Phonographic Performance (1).
(e) It is, accordingly, open to the court to have regard to any and all considerations that may have any bearing on the overriding objective of doing justice. Its task is to take an overview of the case as a whole (Bank of Credit & Commerce Intl. v. Ali (No. 4)(3) per Lightman J.). The new Civil Procedure Rules governing civil litigation in the English courts provide that the court "must have regard to all the circumstances" and then go on to spell out certain matters that such circumstances include, the "conduct of all the parties" being one and "whether a party has succeeded on part of his case, even if he has not been wholly successful" on another (Civil Procedure Rules, para. 44.3(4)). To a large extent, however, the particular matters mentioned do not more than state the obvious and it is unnecessary to import them verbatim, in any formal way, into the practice of the Royal Court.
(f) It is implicit in this that, even though a party would otherwise be regarded as having been "successful" justice may require that costs should not automatically follow the event.
8. Among the factors to which a court may have regard, two in particular should be mentioned at this point. The first is conveniently expressed in the passage of the judgment of Judge, L.J. in Ford v G.K.R. Construction Ltd (7) (with which Lord Woolf, M.R. and Pill, L.J. agreed), in which he said ([2000] 1 W.L.R. 1400):
'Civil litigation is now developing into a system designed to enable the parties involved to know where they stand in reality at the earliest possible stage, and at the lowest practicable cost, so that they may make informed decisions about their prospects and the sensible conduct of their cases. Among other factors the judge exercising his discretion about costs should consider is whether one side or the other has, or has not, conducted litigation with those principles in mind.'
After referring to the trial judge's reasons for making the order, he continued (ibid, at 1402).
'Indeed his judgment has served to underline the importance, rightly and increasingly, to be attached to civil litigation being conducted openly between the parties with the real issues between them efficiently and quickly identified and investigated.'
The case in question was one in which the trial judge had, quite properly in the opinion of the English Court of Appeal, awarded a successful plaintiff the entirety of her costs notwithstanding that she had failed to beat the payment in, but the principle was plainly intended to be of more general application.
9. Secondly, it may also be appropriate for a court to have regard to the fact (if such be the case) that a defendant has to a greater or lesser extent brought the action on his own head. Authority for the proposition that this can be a legitimate factor to take into account is to be found in a clutch of decisions of the English Court of Appeal in the late nineteenth and early twentieth centuries which include, among others: Angus v Clifford (2), Bostock v Ramsey Urban Council (4) and Ritter v Godfrey (8). In each of these cases the court recognized that, in exercising a discretion in relation to costs, a court was not confined to looking at the conduct of the parties during the course of the litigation itself but was entitled to have regard also the earlier circumstances. Although it is now necessary to treat older authorities on costs with caution, the general point made in those cases is, in my view, still a perfectly valid one. A relatively recent application of the point can, for example, be found in the decision of the English Court of Appeal in Walker v Daniels (11), in which the successful appellants were refused their costs because, in the words of Lord Woolf, M.R., they had 'brought the appeal on themselves as a result of the way the matter was conducted in the court below.' Such an approach in civil cases would also be broadly consistent with that of the Royal Court in criminal proceedings: Romeril v Att. Gen (9)."
4. Advocate Blakeley, for the respondents, submitted that it was readily apparent that the respondents were the winners. Mr Kilbey had failed to establish unfair prejudice and his representation had been dismissed. On the counter claim, Grafters had succeeded in its allegation that Mr Kilbey had acted in breach of his fiduciary duties and an award of nominal damages had been made in its favour. Taking an overview of litigation as a whole, justice required that the respondents be awarded their costs for both the representation and the counter claim and this on the indemnity basis.
5. Advocate Renouf for the representor, whilst accepting that Mr Kilbey lost at trial and expected therefore to pay an appropriate proportion of the respondents' costs, submitted that I should depart from the general rule that the successful party would normally be entitled to costs, because the respondent's conduct of the case wasted very substantial court time and legal fees with arguments which were unsuccessful and/or unreasonable. He said the respondent significantly extended the duration and expense of the trial and preparation for it through pursuing arguments which did not succeed at trial.
6. The Court had identified four issues for it to determine, as set out at paragraph 109 of the judgment as follows:-
"There are four issues, therefore, for the Court to determine in this order:-
(i) Was this a quasi-partnership? If so
(ii) Did Mr Kilbey's conduct justify his removal as a director without a reasonable offer for his shareholding? If not
(iii) Did Mr Baker and Mr Jones make a reasonable offer for his shareholding? If not
(iv) Assuming an order for the purchase of Mr Kilbey's shareholding, what valuation should the Court place on it?"
7. The respondents, he said, had unreasonably refused to acknowledge the existence of a quasi-partnership, an issue over which the Court had "no doubt", disposing of it in one paragraph (paragraph 113). The respondents did not, therefore, succeed on the first of the four issues.
8. The respondents then went on to bring Mr Kilbey's conduct into issue by asserting that it justified his removal without a reasonable offer for his shareholding, causing the hearing of witnesses and the diversion of much court time when conduct was irrelevant to whether the offer for Mr Kilbey's shareholding was reasonable. The Court found that Mr Kilbey's conduct, whilst serious, was not so serious as to justify his removal without a reasonable offer for his shareholding. The respondents did not succeed, therefore, on the second of the four issues. They did, of course, succeed on the remaining two issues.
9. As to the counter claim, Advocate Renouf said this was a pyrrhic victory in respect of a very time consuming, expensive and ultimately disproportionate part of the trial. Mr Kilbey had accepted in his second skeleton argument that if Grafters succeeded in establishing breach of fiduciary duty (which was denied) then following Seager v Copydex (No. 1) [1967] RBC 349 the appropriate measure of damages "would be a reasonable price the defendants ought to pay for using the claimant's documents as a shortcut to setting up their own business". If the respondents had offered to accept £100 to deal with the counter claim, Mr Kilbey would immediately settled to remove that very expensive issue. In Advocate Renouf's submission an award of £100 represented a failure of the counter claim, but even if that is wrong, it could not have been a proportionate claim to make given the expense involved in that aspect of the proceedings. As a consequence, Mr Kilbey should have his costs in relation to the counter claim.
10. As to the representation, Advocate Renouf submitted that the respondents succeeded in 50% only of the fundamental issues at trial. Some three days of evidence related to the conduct issue, which would again suggest that 50% of the costs were attributable to the respondents. If I found that the issue of conduct had been unreasonably raised by the respondents, then there should be no order for costs. If, however, I found that conduct had been reasonably raised by the respondents, then in light of the fact that they lost on that issue, would suggest that a 50% costs order against Mr Kilbey would be just.
11. In response, Advocate Blakeley pointed out that the allegation of quasi-partnership had been introduced by Mr Kilbey into his pleading by way of an amendment late in the day. In a response to a request for further and better particulars, Mr Kilbey had elaborated in some detail as to discussions he said had taken place on which the agreement or understanding of a quasi-partnership was based. Mr Baker and Mr Jones did not accept that any such discussions had taken place. They were both clear in their evidence, however, that if Mr Kilbey had been removed as a director, then his shareholding would have been purchased at a fair price. The Court found the existence of a quasi-partnership on the more limited criteria set out in Ebrahim v Westborne Galleries Ltd [1972] 2 All ER 492 (see paragraph 92 of the judgment).
12. In relation to conduct, it was Mr Kilbey, said Advocate Blakeley, who in his amended representation raised the issue (paragraphs 9-15) and expanded upon it in his response to a request for further and better particulars. He asserted that there were no proper grounds for his removal and that he had been removed in order for the respondents to get de facto control of Grafters and its finances. These allegations were denied and were therefore at issue in the trial. In addition, Mr Kilbey had made a number of further allegations of unfairly prejudicial conduct in the period after his removal set out in paragraph 110 of the judgment, most of which either fell away or were not pursued by Mr Kilbey during the hearing.
13. Furthermore, it would not have been possible for the Court to have dealt properly with the issue of whether the offer made for Mr Kilbey's shareholding was reasonable without hearing evidence as to the background and the conduct of the parties. The credibility of Mr Kilbey was an important factor for the Court, for example, when considering the circumstances in which Mr Stuart was instructed to provide a valuation.
14. Advocate Blakeley also pointed out that, apart from the evidence of the parties themselves, some of the other witnesses gave evidence in relation to the counter claim. In any event, the issue of conduct was introduced into the proceedings by Mr Kilbey because he had raised it in his pleadings.
15. As to the counter claim, Mr Kilbey, in his answer, while accepting he had removed data from Grafters (in evidence he said he took everything he could) denied any breach of his fiduciary duties as a director. Grafters were seeking an account of the profits made by the use of its data (which, in its view, had been stolen) and damages. It was during the course of the hearing that after discussion with the Court, and in order to avoid the costs of yet further hearings to deal with an account and the assessment of damages, that Grafters limited its financial claim to nominal damages (see paragraph 191 of the judgment). However, on the central issue of whether Mr Kilbey was in breach of his fiduciary duties as a director, he had maintained his denial right through to the end of the proceedings and Grafters succeeded on that issue.
16. The Court of Appeal in Flynn v Reid expanded on the principles set out in Watkins at paragraph 14 in this way:-
"14 As stated in Watkins [2002] JLR 1, at para 7, the principles are broadly in accordance with In re Elgindata Ltd (No. 2)(7), a decision of the English Court of Appeal which predated the Civil Procedure Rules, although with additional flexibility now that the overriding objective is engaged. Elgindata is itself summarized in the judgment of Watkins (ibid, at para 3), and draws a distinction between two different situations (a) that a party may be deprived of his costs where he raises issues on which he fails even though he has succeeded overall; and (b) that he may be ordered to pay the unsuccessful party's costs if he raises issues or makes allegations improperly or unreasonably. The Royal Court has indeed in practice tended to draw a distinction between these two forms of costs orders (see for example Café de Lecq Ltd v. R.A.Rossborough (Ins. Brokers Ltd (6)). It is not (and never was) necessary to show unreasonable conduct to trigger the former and less severe of the two, and the dictum of Lord Woolf, M.R. in A.E.I. Rediffusion Music Ltd v. Phonographic Performance ltd (1) ([1999] 1 W.L.R. at 1522) insofar as it suggests otherwise should be treated with caution."
17. In my view, this is not a case where the respondents, as the successful parties, should be deprived of their costs because they had raised issues on which they failed, even though they succeeded overall or should be ordered to pay Mr Kilbey's costs because they had raised issues improperly or unreasonably. The existence of the quasi-partnership and conduct was raised by Mr Kilbey in his pleadings based on factual assertions, some of which the respondents denied and so they became factual issues in the case.
18. Advocate Renouf's skeleton argument went into considerable detail in relation to conduct, labelling the reason for Mr Kilbey's removal as "self-evidently a sham", the true purpose being for the respondents to avoid sharing profits with him. It was not unreasonable for the respondents to respond to these allegations, even if the Court ultimately found that Mr Kilbey's conduct was not so serious as to justify his removal without a reasonable offer for his shareholding.
19. I also agree with Advocate Blakeley that it would have been difficult for the Court to have dealt with the third issue (whether the offer made to Mr Kilbey for his shareholding was reasonable) without hearing evidence as to the background and the conduct of the parties over the relatively short period involved.
20. Both parties had made offers in the period leading up to the hearing and Advocate Renouf accepted that none of the offers made by Mr Kilbey beat the findings of the Court. He did refer me to letters sent on behalf of Mr Kilbey on 27th May, 2011, and 19th July, 2011, when Mr Kilbey effectively asked the respondents to forego the expense of a costly trial by grounding the Court's jurisdiction under Article 141 with a concession of unfair prejudice based on Mr Kilbey's exclusion from the company as a quasi-partnership and to have a simple trial based on valuation only. The difficulty with that offer was that in order to ground the Court's jurisdiction there would have to be a finding that there had been unfairly prejudicial conduct; in other words, a concession on the part of the respondents that the offers that they had made to Mr Kilbey were unreasonable. In my view, it would not be fair to criticise the respondents for refusing to make such a concession.
21. Advocate Blakeley drew my attention to a letter he wrote to Advocate Renouf on 24th October, 2014, on the eve of the hearing, making a "drop hands" offer with both sides bearing their own legal costs. That offer was rejected.
22. Standing back and taking an overview of the litigation, Mr Kilbey was claiming conduct on the part of the respondents unfairly prejudicial to him. He failed in that claim, and in my view, costs should follow the event. The respondents did not raise issues on which they failed for which they should be deprived of their costs or raise issues or make allegations improperly or unreasonably for which they should be ordered to pay costs.
23. As to the counter claim, it is the case that Mr Kilbey removed a great deal of data from Grafters secretly and it was not unreasonable for Grafters to wish to hold him to account for his use of what is its property. The agreement to reduce the claim to nominal damages came during the hearing under some pressure from the Court and in the context of costs that had already grown out of all proportion. The key point is that Mr Kilbey denied any breach of his fiduciary duties throughout and Grafters succeeded in that claim. Costs again should therefore follow the event.
24. Advocate Blakeley sought the respondents' costs on the indemnity basis. He pointed out that there would be a very significant shortfall between what the respondents would recover on the standard basis and their actual costs and the greater the costs involved, the greater the shortfall.
25. The Court of Appeal in C v. P-S [2010] JLR 645 summarised the central approach to an award of indemnity costs at paragraph 12 in this way:-
"We therefore approach the costs contentions on the understanding that in order for an indemnity award to be made there must be something to take the case out of the ordinary and a degree of unreasonableness (of which abuse of process is but an example) but recognizing that there is an 'infinite variety' of circumstances where it may be right and proper for the court to make such an award."
26. Advocate Blakeley submits that such an award is justified in this case because in summary:-
(i) Mr Kilbey's evidence was rejected wholesale and he was found to have made untruthful statements in his affidavit evidence.
(ii) He made very late discovery of the Moleskine notebook (paragraph 26 of the judgment). The court found that the notes in it had not been made contemporaneously.
(iii) He applied to amend his pleadings at the outset of the hearing (paragraph 88 of the judgment) to remove his assertion that he was an employee of Grafters.
(iv) Many of the allegations of unfairly prejudicial conduct were either dropped or not pursued.
(v) He refused to accept the "drop hands" offer shortly before the trial started.
27. It is the case that in its judgment the Court rejected much of Mr Kilbey's evidence, but as Advocate Blakeley conceded this alone would not justify the imposition of indemnity costs. The most serious accusation brought by the respondents against Mr Kilbey relates to the Moleskine notebook which they say was fabricated and I have to agree that a finding to that effect would have taken the case out of the ordinary. The Court did not, however, go that far; its finding was that the notes were not made contemporaneously.
28. I have considered all of the arguments put forward by Advocate Blakeley but at the heart of this litigation was the claim that the offers made by the respondents for Mr Kilbey's shareholding were unreasonable. I agree with Advocate Renouf that the case put forward by Mr Kilbey in this respect was not hopelessly bad. It was a perfectly proper argument to advance, even if ultimately it did not succeed.
29. This was hard fought litigation involving a great deal of animosity between the parties (characteristics which do not take it out of the ordinary), but although I have come close to it, I am not quite persuaded that Mr Kilbey's conduct justifies an award of indemnity costs.
30. Advocate Blakeley sought an interim payment of the respondents' costs on the basis that, as held in Centre Trustees (C.I.) Limited v Van Rooyen [2009] JRC 133:-
"In fairness to the successful party, there is no good reason to keep it out of the sum which it is likely to recover on a conservative basis in any event."
He produced a very brief note of his costs and those of the previous firm acting for the respondents, which totalled £276,000 plus £25,000 for disbursements, (making a total of £301,000) without specifying the charge out rates or the hours spent. However, he pointed out that the respondents' costs were lower than those incurred by Mr Kilbey and he felt I could be satisfied that the rates and hours would have been reasonable. He sought 50% of those costs by way of an interim payment, namely £150,000.
31. I have determined to award costs on the standard basis and I therefore do not have a summary of the respondents' costs applying factors A and B as recommended in Marange Investments (Proprietary) Limited v La Générale des Carrières et des Mines SARL [2013] (2) JLR Note 21. Notwithstanding this, I accept the general principle that an interim payment should be made, although there are difficulties in this case.
32. I do not have a detailed affidavit of means from Mr Kilbey but I was informed by Advocate Renouf that he already owes Advocate Renouf's firm £150,000. His home is mortgaged, but in any event, it is jointly owned with his wife. An order for the immediate payment of £150,000 or anything like that sum would lead to his immediate bankruptcy. He has two businesses, from which I was told he would be able to draw £15,000 per month, presumably after reasonable living expenses, but he needs those funds to finance his appeal against the judgment of this Court, without which his appeal would be stymied.
33. Advocate Blakeley suggested, therefore, that Mr Kilbey should be ordered to make a monthly contribution of £10,000 pending the appeal or further order. Otherwise, he said, Mr Kilbey would be gambling with the respondents' money. In his appeal he is apparently seeking an order for the transfer of his shares in Grafters to the respondents at the current valuation determined by the Court, namely £25,000. The real effect of the appeal, if successful, will be to place the burden of all of the costs of the litigation upon the respondents.
34. I agree that an interim payment should be made but I cannot justify the sum sought by Advocate Blakeley on the scant information he has supplied. In my view I can be satisfied that on a conservative basis the respondents will recover at least £100,000 and I order this sum to be paid but at the rate of £7,000 per month, starting within seven days of this judgment being handed down. That rate can be varied after the appeal depending on its outcome. I am going to give Mr Kilbey liberty to apply back to me for a variation to this order if compliance with it will give rise to genuine difficulty, but any such application must be accompanied by a detailed affidavit in support.
35. Finally, there are two interlocutory judgments in respect of which orders for costs were left over.
36. The first arises out of the respondents' application to discharge the interim injunctions granted to Mr Kilbey and the hearing that took place on 29th November, 2012. Costs for that hearing were left over. Advocate Renouf conceded that these costs should follow the final outcome of the proceedings so I will order Mr Kilbey to pay the respondents' costs on the standard basis in this respect.
37. The second relates to the application by the respondents for leave to adduce at trial evidence of what was said during an unsuccessful mediation and which is the subject of the judgment of Sir Michael Birt, then Bailiff, of 19th November, 2014, (Kilbey-v-Grafters Ltd and Ors [2014] JRC 227). Although Sir Michael Birt found there was force in the arguments put forward on behalf of the respondents, he was not persuaded by them and the application failed for the reasons set out in his judgment. This was an unusual application and in my view is one which can be dealt with in isolation. Mr Kilbey was the successful party in resisting that application and costs should therefore follow the event. I will therefore order the respondents jointly and severally to pay his costs in that respect on the standard basis.
38. Thus, in summary:-
(i) Mr Kilbey shall pay the respondents' costs of and incidental to the representation, the counter claim and the hearing on 29th November, 2012, on the standard basis.
(ii) The respondents shall pay Mr Kilbey's costs of and incidental to the respondents' application to adduce at trial evidence of what was said during an unsuccessful mediation and which was the subject of the Court's judgment of 19th November, 2014, on the standard basis.
(iii) Mr Kilbey will make an interim payment on account of the respondents' costs in the sum of £100,000 payable at the rate of £7,000 per month, starting within seven days of this judgment being handed down and payable four weekly thereafter and this until further order. The respondents will have liberty to apply to the Court for a variation of the rate at which this interim payment is made following the determination of the appeal and subject to any order the Court of Appeal may have made. Mr Kilbey will have liberty to apply back to the Court for a variation of this interim order if it will give rise to genuine difficulty, but any such application must be accompanied by a detailed affidavit in support.
Authorities
Companies (Jersey) Law 1991.
Watkins and Connell v Egglishaw and Four Others [2002] JLR 1.
Flynn v Reid [2012] JLR 226.
Seager v Copydex (No. 1) [1967] RBC 349.
Ebrahim v Westborne Galleries Ltd [1972] 2 All ER 492.
Centre Trustees (C.I.) Limited v Van Rooyen [2009] JRC 133.
Marange Investments (Proprietary) Limited v La Générale des Carrières et des Mines SARL [2013] (2) JLR Note 21.